Market States and Momentum
National University of Singapore · Australian National University
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Abstract
ABSTRACT We test overreaction theories of short‐run momentum and long‐run reversal in the cross section of stock returns. Momentum profits depend on the state of the market, as predicted. From 1929 to 1995, the mean monthly momentum profit following positive market returns is 0.93%, whereas the mean profit following negative market returns is −0.37%. The up‐market momentum reverses in the long‐run. Our results are robust to the conditioning information in macroeconomic factors. Moreover, we find that macroeconomic factors are unable to explain momentum profits after simple methodological adjustments to take account of microstructure concerns.
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3Topics & keywords
Topics
Keywords
- Economics
- Momentum (technical analysis)
- Stock market
- Financial economics
- Profit (economics)
- Stock (firearms)
- Econometrics
- Monetary economics
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